The White House is adamant that the government money spent to prop up Silicon Valley Bank didn't amount to a "bailout," but very few economists, lawmakers, and political commentators appear to be buying the administration's argument.
White House press secretary Karine Jean-Pierre said on Monday that "this is not a bailout," and President Joe Biden during his morning remarks that same day insisted that "no losses will be borne by the taxpayers." But Biden appears to be on an island with that interpretation of the federal government's extraordinary actions, which protected all of the bank's depositors.
Financial journalists Sebastian Mallaby of the Washington Post, Andrew Ross Sorkin of the New York Times, and Emily Stewart of Vox all categorized the government actions as a bailout. Two economists interviewed by NPR said the same.
And lawmakers from both sides of the aisle agreed on something for once: Biden's actions constituted a bailout. Sen. Bernie Sanders (I., Vt.) released a statement that said, "Now is not the time for U.S. taxpayers to bail out Silicon Valley Bank," while Sen. Cynthia Lummis (R., Wyo.) said in a Monday interview the Biden administration's "bailout" could "encourage risky behaviors by similar institutions down the road."
The White House's word games reportedly stem from concerns about optics. Politico reported on Monday that Biden was initially hesitant to order anything that "could be labeled a taxpayer-funded bailout," recalling the political firestorm Washington faced in 2009 following the passage of the Emergency Economic Stabilization Act and Troubled Asset Relief Program (TARP), which provided loans and liquidity to financial institutions at the height of the Great Recession.
But following pleas from advisers, and reportedly California governor Gavin Newsom (D.), Biden, in the words of one economist, decided to set "a crazy precedent." Under the federal government's emergency program, all of Silicon Valley Bank and Signature Bank's depositors will have complete access to their deposits—even those above the $250,000 insurance limit covered by the FDIC. The Federal Reserve also created an emergency lending program—backed by taxpayer funds and unmentioned during Biden's Monday remarks—to keep other financial institutions afloat should they run low on cash.
Richard Squire, a Fordham University law professor and banking expert, told NPR that "the venture capital firms and the startups are being bailed out. There is no doubt about that."
Biden's "rescue" is "like if you pay a bond for someone to get out of jail, rescuing someone when they're in trouble," he added. "If you don't want to use the b-word, that is fine, but that is what is happening here."
"If your definition [of a bailout] is government intervention to prevent private losses, then this is certainly a bailout," Neil Barofsky, who oversaw TARP under both the Bush and Obama administrations, told NPR.
Critics say the federal government's actions set a precedent that depositors, particularly wealthy ones, will pay even less attention about where they store their money, also known as a "moral hazard." An insurance limit exists for a reason, critics allege, and dispersing with it during a panic raises questions over the purpose of the insurance policy.
In short, Silicon Valley Bank and Signature Bank—and potentially other institutions, if they draw from the Fed's emergency program—were bailed out. Without the federal government's intervention, those banks would have entered some form of bankruptcy, and depositors with funds above the FDIC insurance limit, mostly venture capitalists and tech firms in the case of Silicon Valley Bank, would have likely taken some losses when the banks' customers were sold to another institution.
Biden's assertion that "no losses will be borne by the taxpayers" is specious as well. Aside from the Federal Reserve's emergency lending system, Americans will be on the hook for the FDIC's actions. Most states require federal insurance for banks to operate, which they pay through fees to a federal insurance company. Those costs are ultimately borne by depositors or those who do business with the vast majority of banks, both of which are taxpayers. Moreover, the FDIC will need to recuperate the funds it used to make depositors whole.
The FDIC's deposit insurance fund is roughly $130 billion, far less than the $22 trillion deposited in all U.S. banks. Roughly 42 percent of deposits in the United States are covered by insurance. Should the FDIC's fund run out, it would be up to the Department of Treasury—i.e., taxpayers—to make up the difference.